2. (30%) Take a version of the Solow model characterized by the following set of equations in per capita terms. where A is a measure of efficiency, that for instance captures the average knowledge in the economy or the number of varieties of intermediate inputs that are available for production. a) Calculate the steady state levels of capital per capita. b) Does the steady state interest rate depend on the level of efficiency, A? Provide an intuition for your answer. In June, 23rd,2016 the United Kingdom voted to leave the European Union. One of the likely consequences of Brexit is a reduction in the flows of workers and goods between the two areas. Since knowledge travels with people and the reduction in trade will affect the number of intermediate goods accessible to British producers, economists have estimated a reduction in British productive efficiency, A, of at least 10%. c) Use the phase diagram of the model -any version of the graph that plots actual and replacement investment vs. capital per capita-- to illustrate the consequences of a 10% decrease in the British level of efficiency (assume the following sequence of events: 1 . The economy is in a pre-Brexit steady state, 2 . Brexit decreases efficiency by 10%,3. Transition to the new steady state. 4 . The economy reaches a post-Brexit steady state with 10% lower efficiency). d) Draw the time path, i.e. the variable in question against time, of the level of output per 2. (30%) Take a version of the Solow model characterized by the following set of equations in per capita terms. where A is a measure of efficiency, that for instance captures the average knowledge in the economy or the number of varieties of intermediate inputs that are available for production. a) Calculate the steady state levels of capital per capita. b) Does the steady state interest rate depend on the level of efficiency, A? Provide an intuition for your answer. In June, 23rd,2016 the United Kingdom voted to leave the European Union. One of the likely consequences of Brexit is a reduction in the flows of workers and goods between the two areas. Since knowledge travels with people and the reduction in trade will affect the number of intermediate goods accessible to British producers, economists have estimated a reduction in British productive efficiency, A, of at least 10%. c) Use the phase diagram of the model -any version of the graph that plots actual and replacement investment vs. capital per capita-- to illustrate the consequences of a 10% decrease in the British level of efficiency (assume the following sequence of events: 1 . The economy is in a pre-Brexit steady state, 2 . Brexit decreases efficiency by 10%,3. Transition to the new steady state. 4 . The economy reaches a post-Brexit steady state with 10% lower efficiency). d) Draw the time path, i.e. the variable in question against time, of the level of output per